Friday, August 2, 2019

Some insight into Apple’s use of capital allowances

We have previously looked at Apple’s revised tax structure put in place from the start of 2015 which, of course, was linked to the extraordinary growth in Irish GDP in that year.  Recent changes to Irish company law offer us further insight into this.  Previously, unlimited companies did not have to have their financial accounts published.  There is now a requirement for unlimited companies to publish accounts via filings with the Companies Registration Office (CRO).

This week the accounts for Apple Operations International for 2018 were published.  Actually, the accounts were the consolidated accounts of AOI and its subsidiaries which number close to 75 so some caution should be exercised about attributing elements in the accounts to particular countries, including the tax figures reported.

Apple’s other main Irish subsidiaries, including Apple Distribution International (ADI) and those central to the state aid investigation, Apple Sales International (ASI) and  Apple Operations Europe (AOE) also had their accounts posted this week by the CRO but using section 357 of the Companies Act have been able to provide the consolidated accounts of the group they are in headed by AOI so the same document is posted for all companies with no information on what happens at the level of each company within the group.  This somewhat limits the details that can ascertained from the accounts and seems to undermine the transparency that the recent changes to company law were intended to bring.

Regardless, there are still a couple of things worth looking at in the consolidated accounts of the AOI group and one of those comes from the balance sheet.  Here is asset side of the balance sheet.  One would think a decent scanner would be among the assets.

Anyway, the figure we are interested in is for deferred tax assets and we are directed to note #5.  First here is what the Summary of Significant Accounting Practices has to say about the treatment of deferred tax:
Deferred tax is recognised in respect of all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements of the Group except where the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax basis of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to receive the asset and settle the liability simultaneously.

Hopefully the next bit makes more sense.  The note on the provision for income tax indicates that most of the tax charge is deferred tax, i.e. tax charged during the period but not actually paid.

For 2017, $4.2 billion of the $6.0 billion tax provision was for deferred tax and in 2018 it was $4.7 billion out of €6.7 billion with most of this described as “origination and reversal of temporary differences”.

The income statement shows that tax charges result from income before taxes of $43.4 billion in 2017 and $46.7 billion in 2018.  These give rise to effective income tax rates of 13.9% and 14.3% for the two years respectively.

However, the amount of tax actually paid is closer to the current income tax element of the tax provision.  The cash flow statement shows that net cash paid for income taxes was €2.0 billion in 2017 and $1.4 billion in 2018 which correspond to an effective rate of around 4% across the two years.  On this it should be noted that a variation on the following note is included several times in the accounts:
The corporate income taxes in the consolidated statements of operations, balance sheets and statement of cash flows do not include significant US-level corporate taxes borne by Apple Inc., the ultimate parent of the group.
US-level taxes are paid by Apple Inc. on investment income of the Group at the rate of 24.5% (35.0% in 2017) net of applicable foreign tax credits. In addition, under changes in US tax legislation that took effect in December 2017, Apple Inc. is subject to tax on previously deferred foreign income (at a rate of 15.5% on cash and certain other net assets and 8.0% on the remaining income), net of applicable foreign tax credits.  The new legislation also subjects certain current foreign earnings of the Group to a new minimum tax.
OK, so these accounts may not fully reflect the overall tax outcome but we are interested what it might show for Ireland.  From the table above we can see that a significant portion of the tax charge is considered a deferred tax.  A deferred tax can a tax charge that will be paid at some stage in the future, therefore the charge appears as a deferred liability on the balance sheet.  Alternative a deferred tax can be a tax charge that will not be paid in the future but instead is offset against an existing deferred tax asset on the balance sheet.

We know from the balance sheet that we are dealing with the utilisation of a deferred tax asset. A further table in note 5 in the accounts shows some detail on the the evolution of the Group’s deferred tax assets in 2017 and 2018.

The total for the end of each financial year, unsurprisingly, matches the figures from the balance sheet but it is the figures for intra-group transactions that we will focus on.

As the earlier post outlined, an Apple subsidiary purchased the license to sell Apple products outside the Americas and became an Irish resident company at the start of 2015.  This license is hugely valuable and the now Irish-resident subsidiary that bought it incurred a huge capital allow to buy the asset.  This expense can be offset against income via capital allowances over a period of time using the provisions of section 291A of The Consolidated Tax Acts.

The above table shows that in September 2016 the AOI group (which includes the subsidiary that can claim the capital allowances) had $22.6 billion of deferred tax benefits from intra-group transactions.  It is only an assumption, but assuming that most of these deferred tax assets arise in Ireland the associated level of income that could be offset by a deferred tax asset of that amount is around $180 billion (the amount of the deferred tax asset multiplied by eight due to the 12.5 per cent rate of Corporation Tax).

In both 2017 and 2018, there was a reduction of around $4.4 billion in those deferred tax assets. If this is linked to capital allowances claimed under s291A it  would be associated with income of around $35 billion.  Given exchange rates this corresponds to a euro amount of around €28 billion or so.  Some support to the such a link is offered as this ties in with changes in income and capital allowances we have since 2015 for companies with negative or nil net trading income.

At the rate of use shown above, it could expected that the capital allowances will be exhausted by the end of 2021, though additional capital expenditure related to the asset may also be eligible for claiming as a capital allowance. It is possible that when the original capital allowances are exhausted something close to the full amount of income will be exposed to Ireland’s 12.5 per cent Corporation Tax – but that assumes that a third tax structure is not implemented by Apple in the mean time.

Finally, it worth looking at the balance sheet to see the figure for the intangible assets against which these capital allowances are being claimed.  The text is hard to read but there is no massive figure for intangible assets.  They are included by the CSO in the capital stock of fixed assets for the country but not included by the company in its consolidated balance sheet.

If the national accounts also did not recognise them it would go some way to fixing some of the problems with the figures for Ireland’s national income.  GDP would still be a mess but GNP and GNI would be much improved (and it could save us €200 million on our EU contribution).

Tuesday, June 25, 2019

Does Ireland really have the lowest per capita consumption of housing in the EU15?

Last week Eurostat published their first estimate of Actual Individual Consumption for 2018.  What is unusual about AIC from an Irish perspective is that it is one of the few national accounting aggregates that Ireland comes below the EU average in per capita terms.  Here is the volume of AIC per capita in the EU15 countries relative to the aggregate level of the EU15.

There is Ireland down towards the bottom with a level equal to 88 per cent of the outcome for the EU15 as a whole.   By this measure Irish per capital consumption of goods and services is below that of Italy. 

A further thing worth noting about Ireland’s AIC is how little it has improved relative to the rest of the EU15 during the recovery.  The drop after the crash in 2008 is not surprising but, as shown in the chart below, Ireland’s real AIC per capita was 89 per cent of the EU15 level in 2012 and was actually lower in 2018 when it was measured to be 88 per cent of the EU15 level.  And this is pretty much where it was back in the late 1990s.

If the recovery is as strong as almost all measures seem to suggest why is it not showing up in real AIC per capita?  Here are the components of consumption for a selection of years (again all figures are relative to the EU15 level which is set to 100).

For most of the components Ireland has improved relative to the EU15 level since 2012 including household furnishings (70% to 83%), transport (94% to 102%), communication (91% to 94%), recreation (60% to 72%) and restaurants and hotels (incl. pubs) (134% to 145%).

Of the components going in the other direction, housing shows the largest fall going to 92 per cent of the EU15 level in 2012 to 78 per cent in 2018.  And what happens to this component is important as housing is actually the largest component of AIC.

Here are the nominal and real values for each component in aggregate and per capita terms using Eurostat’s price level indices for Ireland in 2018. 

The final column gives the share of each component in the aggregate and shows that, at 17.5 per cent of the total, consumption of housing services is the largest component of AIC. This was 21 per cent in 2012.  These changes suggest it is worth looking at Ireland’s consumption of housing services. 

In the context of real AIC per capita, it can be seen that the housing component rose from 78 per cent of the EU15 level in the mid-1990s to around 95 per cent of the EU15 level just before the crash and the recent relative fall has seen it return to 78 per cent of the EU15 level.  Let’s look at some ways to try and explain this.

First, here it is in aggregate terms using constant (2010) prices.

Perhaps surprisingly this shows that our aggregate consumption of housing services has fallen in the past few years and in 2017 was six per cent lower than the level from 2011.  In per capita terms, the reduction is larger due to the growing population.  Compared to 2011, our per capita consumption of housing services is around 10 per cent lower. 

Why has our measured level of consumption of housing services fallen?  It is hard to know.  There has been very limited additions to the housing stock since 2010 but it has not fallen.  Here are the gross and net (after depreciation) stocks of dwellings since 2010.

When looking at the consumption of housing we see that, in real terms, there has been a drop in imputed rentals (which are imputed for owner-occupied and vacant dwellings).  This has only been partially offset by a rise in actual rentals for dwellings with tenants.

Again, we are left with the question as to why imputed rentals have fallen by ten per cent in real terms since 2011.  Yes, some additional units may have become occupied by tenants but, at best, that offsets only one-third of the fall in imputed rentals.

A consequence of this fall is that Ireland now has the lowest real per capita consumption of housing services in the EU15.

There we are, right down at the bottom, only getting ahead of Portugal on alphabetical order.  Housing consumption per capita in Italy is almost 40 per cent higher than in Ireland which goes a long way towards explain the relative position of each in the very first table above.

Here are a couple of outtakes from the SILC that seem to belie our low level of measured housing consumption (with the relative positions of Ireland and Italy worth looking at).

So we have more rooms, less overcrowding and more under-occupied housing then the rest of the EU15.  Yes, there is a difference in coverage.  These figures are from a survey done at household level rather than the aggregate approach based on the capital stock of dwellings taken for the national accounting statistics.

And it is not necessarily the case that houses represent more housing than other types of dwelling but we have more people living in houses than in any other country in the EU15.

And further we have one of the lowest shares in the EU15 of people experiencing severe housing deprivation (again note position of Italy):

OK, again, these might be measuring different things but it still is somewhat incongruous with our position of having the lowest per capita real consumption of the housing services in the EU15.

There could be lots of things going on (vacancy rates, prices, start point bias etc.) but given that Actual Individual Consumption is potentially a useful national accounts measure, not least because it is not distorted by the activities of MNCs, it would be good to have confidence in it.  At present, it says that Italy’s per capita consumption of housing is 40 per higher than Ireland’s which doesn’t instill such confidence.

Friday, April 19, 2019

What do we do with €112 billion of annual savings?

Last week the CSO published the Q4 update of the (non-financial) Institutional Sector Accounts.  These are a great source of information on what is happening in the economy but are terribly difficult to navigate.

Here is a summary of the aggregated current account (Q1 to Q4 2018) by sector. Click to enlarge.

The starting point is the first estimate of nominal GDP for 2018 which is €318.5 billion.  Looking across by sector we can see where this is generated and the clear domination of the non-financial corporate sector in Ireland’s GDP figure (which in turn is dominated by foreign-owned MNCs). The final column gives the flows with the rest of the world. Figures in parenthesis are amounts paid by the relevant sector.

Deducting wages paid and adjusting for taxes paid and subsidies received on products and production gets us to Gross Operating Surplus/Mixed Income.  For the household sector, mixed income is a combination of the earnings of independent traders (the self-employed) and the rent that owner-occupied are imputed to pay themselves (this income is deducted as consumption later down the table so the bottom line is unchanged).  As with GDP, the main generator of GOS in the economy is the NFC sector.

Adding wages received, adjusting for taxes received and subsidies paid on products and production, and accounting for property income paid and received (mainly interest and dividends among others) gets is to Gross National Income.

The move from Gross National Income to Gross Disposable Income is done by adjusting for taxes and transfers.  Most of this are inter-sector flows with payments by one sector being receipts of another.  For example, income taxes paid by households and companies go to the government sector (some minor cross-border flows notwithstanding). 
GDI is a couple of billion lower than GNI because of some cross-border transfer flows.  The rest of the world received about €5 billion more under "Other Current Transfers" from Ireland than Ireland receives from abroad under this heading - €9.5 billion out versus €4.5 billion in. 

Some of this has to do with Ireland’s foreign-aid budget and other transfers.  A large part of it is made up of Ireland’s contribution to the EU budget but it should be noted that earlier in the table the €1.6 billion of "Subsides Paid" from the rest of the word mainly come from the EU and these make up the bulk of the €1.5 billion of "Subsidies Received" by the household sector (agriculture).

Anyway, by this point we have a total economy Gross Disposable Income of €248 billion, of which we use “only" €136 billion on consumption.  That leaves us with Gross Savings of €112 billion and the breakdown by sector can be seen in the bottom row. 

To see what we did with this we turn to the capital account.  Again click to enlarge.

The first panel of the table gives the change in net worth by taking into account capital taxes and transfers and consumption of fixed capital (depreciation on existing assets).

The second panel shows what happened to gross savings and it can be seen that we did €82.8 billion of gross capital formation on produced capital assets and had net purchases of €22.5 billion of non-produced assets (such as marketing assets and customer lists).  That left the economy in a net lending position of €6.6 billion for 2018 (with this €6.6 billion being borrowed by the rest of the world).

The continued deleveraging of the household sector is evident in its net lending position of €5.5 billion.  This will have been, in part, used to repay debt and the household sector has significantly reduced its outstanding debt over the past decade.  The government sector had close to a balanced position in 2018 so, unlike the household sector, did not have a surplus to reduce its debt.

The big figures are again in the NFC sector with €83 billion of Gross Savings fully offset by €62 billion of investment in produced capital assets (gross capital formation) and €22 billion of net acquisitions of non-produced assets giving a net borrowing position of €1 billion.
This relatively modest outcome at an aggregate level probably belies significant changes within the sector.  It is highly unlikely that the companies with the €83 billion of Gross Savings were the companies that invested €84 billion in assets.  The companies with the savings would have used that to reduce their debts (built up when acquiring assets, including intangible assets, in earlier years) while those acquiring assets in 2018 would have funded that by new borrowing of their own.  So while the accounts might show €112 billion of Gross Savings most of it is the result of MNC activities and is not ours to spend.

It is probably a little more than a coincidence that the numbers in the NFC sector were so close in 2018 giving a net outcome of "just" minus €1 billion.  And, it should be noted, that these are just the first estimates.  Things could be very different when the National Income and Expenditure results are published during the summer.  We saw this for the 2015 results though such changes are largely limited to the NFC sector.

The previous compositional issue is also true for the household sector, though on a smaller scale.  While the household sector had net lending of €5.5 billion, repayments against existing debt would have been much larger than this, possibly twice as large.  Those in the household sector who undertook investment (which is mainly on houses) could have funded this with new borrowing.  The balance of repayments on existing debt and new borrowing for investment gives the overall net lending position of €5.5 billion.

This is a Gross Saving that is ours to spend.  Eventually the deleveraging will stop.  Whether that leads to an increase in consumption or investment is hard to tell.  The vulnerable position of the government sector probably means that some caution in the household sector is warranted but whether this caution will persist remains to be seen.

Wednesday, March 6, 2019

Housing Costs in the SILC

Eurostat’s Statistics on Income and Living Conditions (EU-SILC) have lots of household-level data.  Here we will look at outcomes related to housing costs and look for the impact of the ongoing difficulties with housing in Ireland in the data. 

We’ll start with what Eurostat call “total housing costs” as a share of disposable income.

EU15 SILC Housing Costs to Disposable Income 2004-2017

In 2017, Ireland had the lowest “total housing costs” as a share of disposable income in the EU15.  In Ireland, the average share of housing costs was 16.1 per cent of disposable income in 2017 and this has been falling slightly in recent years, i.e. household disposable income is growing faster than housing costs – on average across all households. 

The picture isn’t much different if we look at the median instead of the average with Ireland again being towards the bottom.

EU15 SILC Median of the Housing Cost Burden 2004-2017

In 2017, in Ireland the median housing cost burden was 11.3 per cent of disposable income.  Half of households had a housing cost burden as a share of disposable income that was less than this.

Of course, we would like to know what is included in “total housing costs” used as the numerator in the above charts.  The details are provided here.  For all tenure types it includes the following if they are paid by the occupant:

  • Structural insurance,
  • Mandatory services and charges (sewage removal, refuse removal, etc.),
  • Regular maintenance and repairs,
  • Taxes, and
  • The cost of utilities (water, electricity, gas and heating).

For all tenure types housing costs are considered gross of any housing benefits (i.e. housing benefits should not be deducted from the total housing cost), then for each tenure type it also includes:

OWNERS: Mortgage interest payments, net of any tax relief

TENANTS at market price: Rent payments

TENANTS at reduced price: Rent payments

The most notable thing is that principal repayments on mortgages are not included as part of “total housing cost”.  In part, this reflects the element of choice involved.  If two borrowers take out identical mortgages except one is over 15 years and one is over 25 years it is not appropriate to consider that the household with the shorter term has higher housing costs – they have a higher savings rate.  Of course, the degree to which households have control over the pace of capital reduction on their mortgage may not make it a matter of choice at all.

There will also be differences across countries where borrowers in some countries tend not to make ongoing capital repayments which may be a factor in explaining why countries such as  The Netherlands, Sweden and Denmark are so high in the previous charts.  Capital repayments also increase the equity the household has in the property so aren’t a consumption expense.

Thus, it could be argued that this measure of “total housing costs” doesn’t give a full picture of housing costs but rather is the answer to a question that seeks to find something that is consistent across households and countries and not subject to change due to choices or preferences.  The size and length of mortgage payments will still be picked up through the interest component of “total housing costs”.

It would be useful if “total housing costs” as a share of disposable income was provided by tenure status but it does not seem to be available.  It is, however, provided in Purchasing Power Standard (PPS) units for “owners” and “tenants”.

EU15 SILC Owners Total Housing Costs in PPS 2004-2017

EU15 SILC Tenants Total Housing Costs in PPS 2004-2017

It would be useful if owners were broken down by those with a mortgage or loan and those with none, and if tenants were broken down by those paying the market price and those paying a reduced price.  This is particularly true for Ireland where there are more tenants paying rent at a reduced price then at the market price.

The chart for tenants above shows housing costs rising in recent years. This was around two per cent a year up to 2016 but accelerated to 4.5 per cent in 2017.  This will likely be dampened by the presence of tenants paying a reduced price (such as to local authorities and housing bodies) in the cohort so we could expect the increase for those paying at the market rate to be higher.

Eurostat also provide the share of rent in disposable income for tenants.  Again, it is for all tenants so both those paying a reduced price and the market price will be included.  As a share of the average disposable income of renters, Ireland has the third-lowest average rents in the EU15.  However, Ireland had been the lowest up to 2017 but lost this position due to the increase in rents highlighted above.

EU15 SILC Share of Rent in Disposable Income 2004-2017

Eurostat measure the housing cost overburden rate as being the share of population living in households where total housing costs (as defined above) exceeds 40 per cent of household disposable income.  In 2017, Ireland had the second lowest housing cost overburden rate in the EU15, with only Finland having a (slightly) lower rate.

EU15 SILC Housing Cost Overburden Rate 2004-2017

Ireland might have the next-to-lowest level for all households but as with most of these measures there is plenty going on under the surface.  Here is the 2017 breakdown of the housing cost overburden rate by tenure status.

EU15 SILC Housing Cost Overburden Rate by Tenure Status 2017 Table

Ireland’s overall rate might be 4.5 per cent but for tenants with rent at the market price the housing cost overburden rate is 21.5 per cent putting Ireland sixth-lowest in this category in the EU15.  Thus, just under one-fifth of tenants paying market rates had “total housing costs” in excess of 40 per cent of their disposable income.  As shown in the chart below tenants paying market price has always being the tenure status with the highest housing cost overburden rate in Ireland.

SILC Housing Cost Overburden Rate by Tenure Status in Ireland 2004 to 2017

It may also be surprising how little this is changed over period shown, though there is now a noticeable upward trend since 2013.  It has gone from 16.6 per cent  in 2013 to 21.5 per cent in 2017.

The picture is much the same if we reduce the threshold.  The next chart looks at the share of the population by tenure status where “total housing costs” exceed a lower threshold of 25 per cent of disposable income.  Again, tenants paying the market rate fare worst but here the increase is only visible after 2015 and at 60 per cent in 2017 is the highest in the series.

SILC Housing Cost Burden greater than 25pc of Disposable Income in Ireland 2004 to 2017

And, just for completeness here is a chart of the housing cost overburden rate (40 per cent of income threshold) for tenants renting at the market price across the EU15.  Ireland, has generally had one of the lower housing costs overburden rates for tenants paying market rates since 2004, but, though still near the bottom, Ireland’s relative position has been moving upwards in recent years.

EU15 SILC Tenants Housing Cost Burden more than 40pc of Disposable Income 2004-2017

Next, is the housing cost overburden rate for households that are at-risk-of-poverty, i.e. those with an equivalised disposable income of less than 60 per cent of the median.  Again, this is another instance where Ireland is near best-in-class in the EU15, with only Finland again having a slightly lower rate.

EU15 SILC Housing Cost Overburden Rate AROP Households 2004-2017

Ireland’s position in the above chart indicates that Irish households who are at-risk-of-poverty have to devote a lower share of their disposable income to housing costs than in other countries.  For example, in Denmark around 80 per cent of households who are at-risk-of-poverty have housing costs that are greater than 40 per cent of their disposable income.  And, the more income that has to go on housing costs the less there is for other items of consumption.

To explore this further, Eurostat also calculate an at-risk-of-poverty rate that deducts “total housing costs” from household disposable income.  This uses the standard at-risk-of-poverty threshold, i.e. 60 per cent of the national median equivalised disposable income, but compares it to household income after housing costs have been subtracted from it which can give an indication of what is available to spend on items other than housing.

EU15 SILC AROP after Housing Costs 2004-2017 2

Using this approach Ireland had the fourth-lowest at-risk-of-poverty rate in the EU15 in 2017.  Housing costs include rents at the market price but this has not resulted in any noticeable increase in this measure and, in fact, has declined slightly in the past few years.

As “total housing costs” used to calculate the above shares and rates excludes capital repayments on mortgages it may be that the calculations and ratios do not give a full insight into housing costs.  To this end, participants in the SILC are asked to assess the “financial burden” of their housing costs on the scale of give their view of whether it is:

  • a heavy financial burden,
  • a financial burden, or
  • not a financial burden.

Eurostat’s notes tell us that here a broader approach is to be taken to housing costs when this more subjective view of housing costs is being assessed:

With regard to the calculation of the financial burden of the total housing cost, the following methodological issues should be taken into consideration:

  • The objective is to assess the respondent feeling about the extent to which housing costs are a financial burden to the household.
  • Total mortgage repayment including instalment and interest is to be taken into account for owners and actual rent for renters. In addition, service charges (sewage removal, refuse removal, regular maintenance, repairs and other charges) are to be considered.

Here is the share of people living in households who consider the impact of their housing costs (including capital repayments on mortgages) to be a heavy financial burden.

EU15 SILC Financial Burden of the Total Housing Cost 2004-2017

This is likely closer to what we expect for Ireland. The share of people living in households who assessed that they were experiencing a heavy financial burden due to housing costs increased after 2007 and reached 43.3 per cent by 2013. It has since fallen back and was down to 28.4 per cent in 2017, though still the seventh highest in the EU15 – Ireland’s relative position was fourth highest in 2013.  However, as this is a subjective measure such cross-country comparisons may not be entirely valid.  Still, the individual trend for Ireland is revealing and the 2017 level is close to the levels seen from 2004 to 2007.

Monday, March 4, 2019

Reducing the legacy debts of the credit bubble

The information provided in the annual accounts of the banks allows us to observe developments in the remaining stock of debt from the loans that were issued during the credit bubble.  For example, here are Bank of Ireland’s mortgages (PDH and BTL) by year of origination with the data going back to 2011, the first year such information was provided.

BOI Mortgages Outstanding 2018

Between the end of 2011 and the end of 2018 BOI’s stock of mortgages decreased by 15 per cent – from €27.9 billion to €23.7 billion.  However, this headline figure masks what is happening within the loan book and new loans issued each year replace those which are repaid.  The reduction in loans originating in 2011 or earlier is much greater.

At the end of 2011, BOI had €20.0 billion of mortgages that originated between 2004 and 2008, the peak years of the credit bubble.  By the end of 2018, the amount of mortgages issued in that five-year period had reduced to €11.1 billion.  This is a reduction of €9 billion or 45 per cent over the seven years. 

And that is only since 2011.  If the figures were available for earlier years they would show that well over half of the mortgage debt issued by BOI between 2004 and 2008 no longer exists.

Of course, this may overstate the reduction in debt for individual households as many may have remortgaged because, for example, they moved house.  At the end 2011, BOI had 115,000 mortgage accounts that were issued between 2004 and 2008. By the end of 2018 this number had fallen to 85,500.

We can use the number of accounts to get an average outstanding balance for each year.

BOI Mortgages Average Balance 2018

This shows that from the end of 2011 to the end of 2018, the average balance on the remaining mortgages issued between 2004 and 2008 fell by between 24 and 30 per cent.  This is not a like-for-like comparison each year as the average is calculated using only the number of mortgages which remain on the bank's balance sheet; mortgages which are repaid in full or replaced due to remortgages are not included. 

The figures above, though, probably give a good indication of what is happened to mortgages that are being reduced with regular monthly repayments.  For example, at the end of 2011, the 24,000 mortgages BOI has which it had issued in 2007 had an average balance of just over €200,000.  By the end of 2018, the number of these mortgages had fallen to 19,000 and the average balance of those remaining was €148,000 – a reduction of 26 per cent (and that is since the end of 2011 not the point of origination).

Whichever way we look at it – remaining stock or average balance – it can be seen that the legacy debts of the credit bubble have been significantly reduced.  They will have a long tail but, for BOI mortgages at least, we are probably passed the half life.